India‘s ability to increase the role of small businesses in its economy will largely determine whether the country can sustain its rapid economic ascent, the top official promoting Indian small business said in Atlanta.
“The future growth story of India is very, very intimately linked with the growth of (micro, small and medium enterprises),” said Uday Kumar Varma, secretary of the Indian Ministry of Micro, Small, and Medium Enterprises, during his keynote address at the USA-India Business Summit.
The Georgia Institute of Technology hosted the summit for the second straight year on June 21-22. Organizers, including Tech’s Center for International Business Education and Research, hoped it would promote entrepreneurship and spur interaction between American and Indian businesses.
Small and medium-sized companies account for only 10 percent of Indian gross domestic product. In more developed countries such as the U.S. and the United Kingdom, they make substantially larger contributions to the national income.
The Indian government understands that, in the long run, development of MSMEs can help sustain the velocity of the country’s development as well as improve income distribution. For these reasons, the Indian government passed the Micro, Small and Medium Enterprise Act of 2006 which included the creation of his ministry, Mr. Varma said.
India is also providing credit guarantees for banks that loan to small businesses. Similar to those made by the U.S. government, the guarantees help overcome a major impediment to growth for small enterprises: scant access to capital.
The government has also established lending guidelines requiring banks to make 40 percent of their net profits available as lending to priority sectors such as small business.
India has consistently enjoyed one of the fastest growing economies in the world in recent years, posting a gross domestic product growth rate of about 8 percent in 2010, but the breakneck speed has also created myriad challenges.
Business leaders at the Georgia Tech summit agreed that underdeveloped infrastructure was a major concern in India, with a lack of roads, railroads, airports and seaports making it difficult to move people and products throughout the country.
Frank Kelly, of management consulting firm MFK Global Inc., had just come back from Bangalore, India’s high-tech hub. He said the government has made strides to address the infrastructure gap, but it hasn’t been enough.
“Progress over the last 20 years, and particularly the last five years, has been substantial,” he said. “The problem is that the country is so large, even significant progress seems miniscule.”
Some attendees described other major obstacles for small companies and expressed hope that India’s push to smooth the way for domestic small business would also benefit foreign firms entering the market.
Sainergy Tech Inc., a Marietta-based that makes fuel cell components, faces a 28 percent duty when bringing its products into India, denting margins and competitiveness on a product that is already expensive to make, said President and CTO Sri Bollepalli. He added that Sainergy sells its products duty free in China, Singapore and South Korea.
Mr. Kelly suggested that companies looking to get their feet wet in India do so through joint ventures with local partners. His reliance on a strong, Indian management team was a large part of his company’s success there, he said.
Jack Leahey, executive vice president for the Alpharetta subsidiary of Rolta India Ltd., has been to India more than 30 times. He said a burdensome bureaucracy there makes it a very difficult environment for small and medium-sized businesses.
Companies can sidestep potential pitfalls and take advantage of the relatively low cost of Indian labor by outsourcing work there, Mr. Leahey said.